Editing Noise trader

{{Short description|Stock trader who uses economic noise}}
A '''noise trader''' is a [[stock trader]] whose decisions to buy or sell are based on "factors they believe to be helpful but in reality will give them no better returns than random choices".<ref name=":0">{{Cite news|title=Noise Trader Definition|language=en|work=Investopedia|url=https://www.investopedia.com/terms/n/noisetrader.asp|access-date=2021-03-07|archive-date=2021-02-19|archive-url=https://web.archive.org/web/20210219204322/https://www.investopedia.com/terms/n/noisetrader.asp|url-status=live}}</ref> These factors may include hype or rumor, which noise traders believe to be reliable signals of future returns, but which are actually forms of [[Noise (economic)|economic noise]] that cannot be used to accurately predict the future value of a stock.<ref name=":1" />

Noise traders do not trade randomly; their decisions are systematic.<ref name=":0" /> However, their trading decisions are not based on professional advice or a business's [[Fundamental analysis|fundamentals]],<ref name=":1">{{Cite web|title=Noise Trader - Definition, Current Numbers, Impact|url=https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/noise-trader/|access-date=2021-03-08|website=Corporate Finance Institute|language=en-US|archive-date=2021-03-03|archive-url=https://web.archive.org/web/20210303121413/https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/noise-trader/|url-status=live}}</ref> and the purported signals used by noise traders are more unreliable than those used by [[Technical analysis|technical analysts]]{{Citation needed|reason=Link does not support claim that technical analysts use more reliable signals than noise traders|date=June 2021}}.<ref name=":0" /> Therefore, returns on their trading decisions are expected to be no better than random choices.<ref name=":0" />

Noise traders often act irrationally: they tend to be emotion-driven, impulsive, reactive, and herd-like.<ref name=":2">{{Cite web|last=Downey|first=Lucas|title=Noise Trader Risk Definition|url=https://www.investopedia.com/terms/n/noisetraderrisk.asp|access-date=2021-03-08|website=Investopedia|language=en|archive-date=2021-01-23|archive-url=https://web.archive.org/web/20210123090441/https://www.investopedia.com/terms/n/noisetraderrisk.asp|url-status=live}}</ref> The presence of noise traders in financial markets can cause prices and risk levels to diverge from expected levels even if all other traders are rational.<ref>{{cite journal|last=DeLong|first=Bradford J.|author2=Shleifer, Andrei |author3=Summers, Larry |author4= Waldmann, Robert J. |year=1990|title=Noise Trader Risk in Financial Markets|journal=[[The Journal of Political Economy]]|volume=98|issue=4|pages=703–738|jstor=2937765|doi=10.1086/261703|s2cid=12112860}}</ref>

==See also==
*[[Noisy market hypothesis]]
*[[Quantitative analyst]]
*[[Behavioral economics]]

==Notes==
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[[Category:Financial markets]]

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